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“Ask and it will be given to you; seek and you will find; knock and the door will be opened to you. For everyone who asks receives; the one who seeks finds; and to the one who knocks, the door will be opened. Matthew 7:7-8

3 Oct 2016


Besides Q2FY17 results of India Inc, here are 5 key factors that will determine the market direction from here on
After a knee-jerk reaction to the surgical strike by Indiaacross the Line of Control (LoC) that saw the S&P BSESensex tumble over 500 points in intra-day deals on Thursday, the markets remained on the edge on Friday. The S&P BSE Sensex and the Nifty 50 indices lost ground after opening on a flat note.

Analysts expect markets to remain choppy as investors adopt a wait-and-watch mode over the next few sessions till there is more clarity on the geopolitical situation.

Besides the second quarter results of India Inc, here are 5 key factors that will determine the market direction over the next couple of months.

Clarity on the geopolitical situation: Markets are likely to remain on the edge over the next few sessions as investors await more clarity on the surging tension between Indo-Pak relations. Though most analysts suggest that the fundamentals continue to remain strong from a long-term perspective, the sudden development has cast a shadow on the diplomatic relations between the two countries in the near-term. Markets, they say, do not like uncertainty and will react sharply to any negative news flow.

Also Read: Indo-Pak conflict: Markets will recover after knee-jerk reaction, say analysts

“The situation remains fluid and tense with exceptionally high uncertainty over further diplomatic and military developments, although the Indian Army has indicated that there are no plans for any more immediate strikes. Against this uncertain backdrop the volatility in asset markets may remain high,” suggests a recent Citigroup report co-authored by Gaurav Garg, Samiran Chakraborty and Siddharth Mathur.

RBI Monetary Policy review: The Reserve Bank of India (RBI) will review the Monetary Policy next week – the first under the new governor, Urjit Patel. According to a recent Business Standard poll, the RBI is likely to hold rates steady in its monetary policy review on October 4. The central bank might cut rates by at least 25 basis points (bps) in its December review, since, by then, a clearer picture would emerge on the inflation as well as the economic growth trends. A surprise cut next week, however, could boost market sentiment.

"The forthcoming policy review will be the first one under the 6-member MPC and we would closely watch the views expressed by the 3 external (new) members to gauge its reaction function. Any clarity on MPC’s approach to 4% CPI target by March 2018 would be very welcome," says Kapil Gupta of Edelweiss Securities.

US Presidential Election: Markets are keenly observing the developments regarding the US Presidential election, which analysts say, have the potential to impact market sentiment. 

“Election season has now arrived for world financial markets. With opinion polls so seemingly close in the US presidential race, it is clear that markets would prefer Hillary Clinton over Donald Trump, most particularly bond markets,” says Christopher Wood, managing director and equity strategist, CLSA in his weekly note, GREED & fear.

According to a survey findings, Nomura expects the S&P500 to fall more than 3% in immediate reaction to a Trump victory.

“Specifically, and excluding factors other than simply the election result, we would expect equitymarkets in Hong Kong / China, Korea and the Philippines to be most affected, with India, Singapore and Indonesia in the next grouping, and Thailand and Malaysia falling into the least affected camp,”Nomura says.

Rate hike by the US Fed: The US Federal Reserve (US Fed) kept rates steady in its recent policy review in September. However, analysts say that the US central bank is preparing the markets for a hike in its December policy review, which could see a knee-jerk reaction from the emergingmarkets and impact flows in the short-term.

"The US Fed is still huffing and puffing, but unwilling to blow anything down. We may get one hike in December, but clearly we are seeing less and less confidence in their ability to normalise much," Hong Kong-based Michael Every, head of financial markets research for Asia-Pacific at Rabobank International had told Business Standard in an interview

Oil Prices: For the first time since 2008, Organisation of Petroleum Exporting Countries (OPEC), agreed to limit production by 700,000 barrels per day (bpd) to between 32.5 million and 33 million barrels of oil per day. 

According to Goldman Sachs, the deal should add $7 to $10 to oil prices in the first half of next year. This could be a sentiment dampener for India, which imports nearly 70% of its oil requirements. Moreover, any spike in inflation on account of a rise in oil prices could hold back RBI from cutting rates.

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